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What are institutional investors buying?

Are you interested in the health care sector? Health care is generally considered a growth sector, mainly because it includes biotech, but it also has companies that exhibit value characteristics such as large dividends.

To dig deeper into the health care sector, we ran a screen. We began by screening health care stocks for those that appear undervalued to earnings growth, with PEG below 1.

We then screened for those with the confidence of institutional investors, with significant net institutional purchases over the last quarter. This indicates that on average institutional investors such as hedge fund managers expect these names to outperform.

Business section: Investing ideasThe final list of stocks from this screen are below. These health care companies appear undervalued, and they have seen optimism from smart investors over the last quarter.

Do you think they'll outperform like hedge fund managers expect?

Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. Akorn(Nasdaq: AKRX): Engages in the manufacture and marketing of diagnostic and therapeutic pharmaceutical products, hospital drugs, and injectable pharmaceuticals in the United States and internationally. Market cap of $1.10 billion. Stock price of $11.56. PEG at 0.62. Net institutional purchases in the current quarter are at 6.4 million shares, which represents about 9.42% of the company's float of 67.92 million shares.

2. CIGNA: Operates as a health service organization. Market cap of $13.62 billion. Stock price of $47.54. PEG at 0.96. Net institutional purchases in the current quarter are at 18.2 million shares, which represents about 6.37% of the company's float of 285.67 million shares.

3. Cumberland Pharmaceuticals: Engages in the acquisition, development, and commercialization of branded prescription products for the hospital acute care and gastroenterology markets. Market cap of $149.57 million. Stock price of $7.54. PEG at 0.92. Net institutional purchases in the current quarter at 437,000 shares, which represents about 3.35% of the company's float of 13.03 million shares.

4. DepoMed(Nasdaq: DEPO): Develops and commercializes pharmaceutical products based on its proprietary oral drug delivery technologies in the United States. Market cap of $329.47 million. Stock price of $5.96. PEG at 0.16. Net institutional purchases in the current quarter at 2.6 million shares, which represents about 5.03% of the company's float of 51.72 million shares.

5. Elan(NYSE: ELN): Operates as a neuroscience-based biotechnology company primarily in Ireland and the United States. Market cap of $8.01 billion. Stock price of $14.05. PEG at 0.28. Net institutional purchases in the current quarter at 28.8 million shares, which represents about 5.96% of the company's float of 482.94 million shares.

6. PDL BioPharma: Engages in the management of antibody humanization patents and royalty assets. Market cap of $843.48 million. Stock price of $6.19. PEG at 0.37. Net institutional purchases in the current quarter at 10.6 million shares, which represents about 8.8% of the company's float of 120.43 million shares.

7. POZEN(Nasdaq: POZN): Develops products for the treatment of acute and chronic pain, and other pain-related conditions in the United States. Market cap of $199.37 million. Stock price of $6.80. PEG at 0.16. Net institutional purchases in the current quarter at 1 million shares, which represents about 4.63% of the company's float of 21.6 million shares.

8. Providence Service: Provides and manages government sponsored social services and non-emergency transportation services. Market cap of $186.69 million. Stock price of $14.47. PEG at 0.9. Net institutional purchases in the current quarter at 418,100 shares, which represents about 3.32% of the company's float of 12.58 million shares.

9. Pernix Therapeutics Holdings: Engages in the development, marketing, and sale of branded and generic pharmaceutical products primarily for the pediatric market. Market cap of $227.76 million. Stock price of $8.84. PEG at 0.58. Net institutional purchases in the current quarter at 635,800 shares, which represents about 32.94% of the company's float of 1.93 million shares.

10. Questcor Pharmaceuticals(Nasdaq: QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. Market cap of $2.49 billion. Stock price of $40.27. PEG at 0.79. Net institutional purchases in the current quarter at 3 million shares, which represents about 5.02% of the company's float of 59.75 million shares.

11. Sun Healthcare Group: Provides health care services primarily for senior population in the United States. Market cap of $469.00 million. Stock price of $6.55. PEG at 0.69. Net institutional purchases in the current quarter at 1.1 million shares, which represents about 5.54% of the company's float of 19.85 million shares.

12. Transcend Services: Provides medical transcription services in the United States. Market cap of $314.79 million. Stock price of $29.45. PEG at 0.98. Net institutional purchases in the current quarter at 584,700 shares, which represents about 6.25% of the company's float of 9.36 million shares.

13. USANA Health Sciences: Develops, manufactures, distributes, and sells nutritional and personal care products worldwide. Market cap of $544.29 million. Share price of $35.84. PEG at 0.7. Net institutional purchases in the current quarter at 421,800 shares, which represents about 6.1% of the company's float of 6.92 million shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.